Unlimited Employment Contracts Removed From Federal Labour Law No. 33 of 2021

Only Limited Contracts Under the New Federal Labour Law No. 33 of 2021

The most significant change under Federal Labour Law No. 33 of 2021 is the removal of the unlimited employment contract, leaving only the limited (fixed-term) employment contract.

The Term of the Limited Contract

Under Federal Decree-Law No. 33 of 2021 regarding the regulation of labour relations, which entered into force on 2 February 2022, the employment contract is concluded for a specified period not exceeding three years. The employer and employee may agree to extend or renew the contract for another similar or shorter period, one or more times.

If the employer and employee continue implementing the contract after its original period expires without an express agreement, the original contract is considered extended for the same period under the same conditions.

On 15 September 2022, Federal Decree-Law No. 14 of 2022 amended Article 3/8 of Federal Decree-Law No. 33 of 2021 by removing the specified maximum period of three years, allowing the contract term to be agreed by the parties without an upper limit. This means employers and employees may now agree to a contract term of 10, 15 years, or more, if they wish.

Main Differences Between the Limited and Unlimited Contracts

Nothing has changed regarding the calculation of end-of-service gratuity: 21 days of basic salary for each of the first five years of service, and 30 days of basic salary for each year thereafter, with the total capped at the value of two years' total salary.

Multiple Contracts Are Treated as One Continuous Period for End-of-Service Purposes

When a limited contract is extended or renewed, the new period is considered a continuation of the original and is added to it when calculating the employee's continuous service for end-of-service compensation. The employee's service with the same employer is calculated as one continuous period, regardless of how many contracts were signed, renewed, or whether they were limited or unlimited, before or after the new law's effective date.

For example, if an employee worked for an employer for 10 years — 5 years under an unlimited contract during the previous law, then 3 years under one limited contract, then 2 years under another — the total service is treated as 10 continuous years, and end-of-service compensation is calculated as 21 days' basic salary for each of the first 5 years plus 30 days' basic salary for each of the remaining 5 years.

What Happens at the Expiry of the Limited Contract

If the parties continue performing their obligations without renewing the contract at its end date, it is automatically considered renewed for the same period and on the same terms.

If either party — employee or employer — does not intend to renew, that party must notify the other, observing the same notice period stated in the employment contract, a minimum of one month and a maximum of three months.

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